Transcript Successful Student Loan Repayment

Navigating Your Student Loan
Repayment
May 10th,2013
Agenda
•Determining Your Loan Portfolio
•Debt Management Considerations
•Loan Repayment Plans
•Is Consolidation Worth It?
•Q&A
Determining Your Loan Portfolio
•Who is the lender or service provider for each of your student loans?
– Most education loans are issued under one or two of the following
programs: FFEL or Direct.
– Sometimes the lender is one entity but the servicer is completely
different or the lender has sold the loan to the Department of
Education.
•How much and when did you borrow each loan?
– This will help you determine the best repayment option and how to
calculate any accrued interest.
Loan Portfolio
As a graduate; What types of educational loans do you have? How
many do you have? Your loan portfolio may contain any or all of the
following loans with multiple lenders
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Consolidation loans with a fixed rate from prior degrees
Stafford loans with a variable rate from prior degrees
Stafford loans with a fixed rate
Perkins loans with a fixed rate
Graduate PLUS loans with a fixed rate
Private loans with a variable rate
Columbia institutional loans with a fixed rate
Determining Your Loan Portfolio
Tools to Assist you in identifying all of your loans:
1. Visit SSOL to view loan history.
Determining Your Loan Portfolio
1. National Student Loan Data System (NSLDS): http://www.nslds.ed.gov
– Central database for federal student aid but not a binding document.
Only federal loans are listed here with their loan owner and contact
information. (Log in using SSN, DOB and Federal PIN)
2. Once you know your lender visit their website and create an account.
Understanding Loan Types
Federal Stafford Loan:
•
Lower interest student loans that are regulated by the federal government. The loans
are either subsidized or unsubsidized and the maximum was $20,500-$37,167 (HEAL
limits) per year.
– Subsidized – Need-based with accruing interest paid by the government while the
borrower is in school, during a grace period and during eligible deferment periods
– Unsubsidized – Not need-based with accruing interest paid by borrower or capitalized
at repayment
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Lender Options: Federal Direct Loan Program
Repayment begins six months after you leave school or drop to less than half time
status (6 credits), whichever happens first.
Up to 10-year repayment period (or up to 25 years extended for debts over $30,000)
No prepayment penalties
Interest Rates:
– Loans first disbursed on or after 7/1/06:
• have a fixed rate of 6.8% (this applies to almost everyone in the room). Since this
is a fixed rate loan, there is no “refinance” tool to lower the interest rate – only
federal loan consolidation which may effectively raise your interest rate.
Understanding Loan Types
Federal Consolidation Loan:
•
Fixed interest rate
– Weighted average of underlying loans
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•
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Not a refinance tool, just debt management
No grace period
Repayment will begin immediately
Can be stretched to 30 years depending on debt levels
No prepayment penalties
Stafford loans first disbursed on or after 7/1/06 already have a fixed rate
of 6.8% and do not necessarily need to be consolidated
– The changes in the federal programs have made this option less desirable
– Lenders have eliminated consolidation loans
– Students must consolidate federal loan debt under the Federal Direct Loan
program if they want to take advantage of Public Service Loan Forgiveness
Understanding Loan Types
•
Federal Perkins Loans: Need-based federal loans with a fixed 5% interest rate. No
interest accrued while you were in school. Repayment begins 9 months after you
leave school or drop below half-time, whichever happens first, and is set on a 10 year
repayment.
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–
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•
The loan servicer is ACS www.acs-education.com or call (800) 826-4470
Manage your account here, pay online, update contact info, etc.
Grace period clock starts on June 1
Columbia Institutional Loans: Need-based loans awarded as part of the
scholarship consideration process. No interest accrued while you were in school.
Repayment begins six months after you leave school and loans carry a fixed rate of
5% and are set on a 10 year repayment.
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Grace period clock starts on June 1
After May 1, loan servicer is ACS www.acs-education.com or call (800) 826-4470. Manage
your account here, pay online, update contact info, etc.
Kellogg and Clay loans.
Understanding Loan Types
Graduate PLUS Loan Terms
• Annual fixed interest rate of 7.9%
• Accrued interest paid by borrower or capitalized at repayment
• 10-year repayment period
 Extended repayment plans of up to 25 years are available for Stafford and
Graduate PLUS loans with accumulated loans balances in excess of $30,000
•
No official grace period – Instead, students are given a 6 month postenrollment deferment to align the repayment of the loan with the Stafford
loan.
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

Citibank and Chase will capitalize the interest at the end of the 6 month post enrollment
period and NOT at the end of the in-school period.
Access Group will capitalize interest in May and then again at the end of the 6 month period.
Check with your loan servicer on specifics on their internal policies and about repaying
accrued interest.
Private Loans
Terms differ depending on lender. Contact appropriate lender for
repayment plan.
 Check loan promissory note for specific terms
Debt Management
Before you can choose your Loan Repayment Terms, you need a plan.
• Choose a repayment timeline to meet financial goals. When it
comes to determining a repayment strategy to fit your needs,
remember that a “one size fits all” approach does not work.
• Be sure to consult with your lender and use the tools at your
disposal.
• Repayment strategies are borrower-specific and tailored to meet the
borrower’s financial goals, for example:
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Pay student loan debt quickly
Pay higher rate debt first
Save to buy a house, start a family
Relocate, go into business, etc.
Working in public sector
Repayment Plans
Standard (level) Repayment
• This plan requires equal monthly payments that include principal
and interest.
• It offers:
– The same payment amount for the entire term (10 years)
– Typically, the lowest overall cost
– No penalty for early payoff
• Drawback: The monthly payments may be more than some
borrowers can afford
Standard (level) Repayment – Payment Example
Standard Repayment is the most commonly selected repayment plan and
minimizes the amount of overall interest you will pay.***
Stafford Loan
Amount
Interest
Rate*
Monthly
Payment**
Overall
Interest
Total
Payments
$41,000
6.8%
$472
$15,620
$56,620
GRAD PLUS
Loan Amount
Interest
Rate
Monthly
Payment
Overall
Interest
Total
Payments
$58,000
7.9%
$700
$26,076
$84,076
* Assumes current interest rates
** Assumes 10 year repayment term
***Does not include accrued interest
Repayment Plans
Graduated Repayment
• This plan provides lower monthly payments that increase at
predetermined intervals during the repayment term. It is for all
borrowers whose incomes may be lower at first, but will increase.
• It offers:
– Lower initial monthly payments
– Predictable increases in monthly payment amount
– No penalty for early payoff
• Drawback: The borrower will pay for lower payments with higher
interest costs
Graduated Repayment– Payment Example
Graduated Repayment allows borrowers to pay lower monthly payment while
transitioning from school to work. The payments increase at set intervals and
level off on a pre-determined date.***
Stafford Loan
Amount
Interest
Rate*
Monthly
Payment**
Overall
Interest
Total
Payments
$41,000
6.8%
$235/$396
$50,940
$91,940
GRAD PLUS
Loan Amount
Interest
Rate
Monthly
Payment**
Overall
Interest
Total
Payments
$58,000
7.9%
$382/$597
$85,212
$143,212
* Assumes current interest rates
** Assumes 25 year repayment term
***Does not include accrued interest
Repayment Plans
Extended Repayment
• This plan extends the repayment term for up to 25 years if your
loans total more that $30,000, and providing all your loans were
disbursed after October 7, 1998.
• It offers:
– Low fixed or interest only payments
– Choice of level or graduated repayment schedules
– No penalty for early payoff
• Drawback: Higher interest costs
Extended Repayment– Payment Example
Extended Repayment provides additional years of repayment terms to
borrowers who qualify. The extension in repayment terms provides payment
relief without the need to consolidate.***
Stafford Loan
Amount
Interest
Rate*
Monthly
Payment**
Overall
Interest
Total
Payments
$41,000
6.8%
$285
$44,371
$85,371
GRAD PLUS
Loan Amount
Interest
Rate
Monthly
Payment**
Overall
Interest
Total
Payments
$58,000
7.9%
$443
$75,144
$133,144
* Assumes current interest rates
** Assumes 25 year repayment term
***Does not include accrued interest
Repayment Plans
Income-Based Repayment
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For repayment of Stafford, Grad PLUS and Consolidation Loans if experiencing
partial financial hardship
“Partial Financial Hardship” exists when your monthly payment calculated using the
10 year standard repayment plan is greater than what your payment would be
using 15% of your annual AGI above 150% of the poverty line for your family size.
Any outstanding eligible loan balance is cancelled after 25 years
– May be a taxable event
Monthly payment can allow for negative amortization (less than the monthly interest
that accrues)
Includes a limited interest subsidy benefit
– If your payments don't cover the interest that accrues, the government pays or waives the
unpaid interest (the difference between your monthly payment and the interest that
accrued) on subsidized Stafford loans for the first three years of income-based
repayment.
•
IBR calculators available at:
– http://www.finaid.org/calculators/
– http://ibrinfo.org/
Income Based Repayment– Payment Example
Income Based Repayment**
Total
Federal
Loan
Amount***
Annual
Interest
Salary
Rate*
(assuming
3%
increase)
IBR Monthly
Payment
$99,000
$60,000
$555 (1st year)
$116,592
$703 (9th year)
$1,063 (23rd year)
7.8%
* Assumes an average of loans included
**22.9 years to total payoff
Overall
Interest
Total
Payments
$215,592
Consolidation Consideration
• A Federal Consolidation loan allows the borrower to combine one or
more of their eligible federal education loans into one new loan –
and can extend the repayment term (up to 30 years), allowing lower
monthly payments.
• Loan consolidation is a financial management strategy that may
benefit student borrowers, although it may not be the best strategy
for everyone. It is not a re-financing tool!
• Consolidation interest rate
– Consolidation loans have a fixed interest rate for the life of the loan
– To determine the fixed rate, a weighted-average is computed based on
current interest rates of underlying loans
– Calculated rate is rounded up to the nearest 1/8th percent
– The interest rate is capped at 8.25%
Consolidation Consideration
• Lender issues new loan and pays off the loan(s) put into the
consolidation
• Consolidation loans will likely negatively impact borrower benefits
– Terms associated with individual loans no longer apply
– Consolidation loan has its own interest rate and different payback terms
• Consolidation loans usually cannot be refinanced
– Borrowers can reconsolidate under specific conditions
• Consolidation loans do not have a grace period
– Requires immediate repayment
– Borrowers who consolidated prior loans can expect to have a payment
due around the time of graduation
Weighted Average Interest Rates
What is Weighted Average?
$58,000
GRAD
PLUS
8.5%
$41,000
S
T
A
F
F
O
R
D
6.8%
$58,000 x
7.9% =
$4,582
$41,000 X
6.8% =
$2,788
----------------------------------------------------------$99,000
$7,370
----------------------------------------------------------$7,370 ÷ $99,000 =
0.074444444
or
7.44%
----------------------------------------------------------7.8% rounded up to the
nearest 1/8 % = 7.875%
Consolidation Loan– Payment Example
Consolidation combines the Stafford loans and the GRAD PLUS loans into one
new loan with a new interest rate and a longer repayment term.***
Consolidation Interest
Loan Amount Rate*
Monthly
Payment
Overall
Interest
Total
Payments
$99,000
$718
$159,415
$258,415
7.875%
* Using weighted average interest rate from underlying loans
** Assumes 30 year repayment term
***Does not include accrued interest
Repayment Comparison
**Assumes $99K total debt from previous slides
Interest
Rate
Monthly
Payment
Overall
Interest
Total
Payments
Consolidation
Repayment – 30 yrs
8.25%
$718
$159,415
$258,415
Income Based
Repayment (IBR) – new
22.9 years**
7.8%
$555 (1st year)
$703 (9th year)
$1063 (23rd year)
$116,592
$215,592
Extended Repayment –
25 yrs
6.8%;
7.9%
$752
$126,481
$225,481
Graduated Repayment
– 10 yrs
6.8%;
7.9%
$643; adjusting to
$1390
$49,842
$148,842
Standard Repayment –
10 yrs
6.8%;
7.9%
$1191
$43,914
$142,914
Options
Payment Structure
Maximum
Payment Period
Additional Features
Standard
Fixed
10 years
- Highest initial payment
- Lowest total interest
- No negative amortization
Graduated
Tiered
10 years
- Interest only payments initially
- Payments increase incrementally
- No negative amortization
- Monthly payments can’t be more
than three times greater than any
other payment (“3 times rule”)
Extended
Fixed or tiered
25 years
- Lowest initial payment without
considering income
- No negative amortization
- To qualify in FFELP:
- FFELP debt must be > $30,000
- New FFELP borrower ≥ 10/7/98
Income Sensitive
Adjusted annually
based on:
- Total gross income
15 years
- Subject to “3 times rule”
- No negative amortization
Income Based (IBR)
Adjusted annually
based on:
- Household AGI
- Household size
- Poverty guideline
- State residence
25 years
- Payment is 15% of “disposable”
income if experiencing “partial
financial hardship”
- Eligibility/payment amount reevaluated annually
- Negative amortization allowed
Deferment and Forbearance
What is deferment?
•
If you find that you are unable to meet your monthly payment obligations, contact your lender right
away. You may qualify for a deferment that will allow you to postpone making principal payments
on your loan. The most common deferments granted are those for:
–
In-school periods ------------granted without time limit
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Unemployment ------------applied for annually for up to 36 months maximum
–
Economic hardship -------applied for annually for up to 36 months maximum
What is forbearance?
•
For borrowers with temporary financial issues who do not meet the requirements for deferment,
you may suspend your payments under certain circumstances by requesting forbearance. You
will be responsible for the interest that accrues on your loan. This interest is added to the amount
you owe when you re-enter repayment and must be repaid when payments resume.
•
Forbearances are at the lenders discretion and many have a cap on how long a forbearance can
last. Use this sparingly in case of an emergency down the road.
Loan Assistance and Loan Forgiveness Programs
•
Loan Assistance Programs (LAP) and loan forgiveness may be available if borrowers
qualify and funding is available. Please visit http://www.myfedloan.org/ for more
information
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•
Programs typically are sponsored/funded by:
–
Employer
–
Federal, state or local government/jurisdiction
New program created by CCRAA:
– Public Service Loan Forgiveness Program
http://www.finaid.org/loans/publicservice.phtml
• will discharge the remaining debt after 10 years of full-time employment in public service
• borrower must have made 120 qualified payments under IBR or ICR as part of the Direct
Loan program in order to obtain this benefit. Only payments made on or after October 1,
2007 count toward the required 120 monthly payments
• There are many restrictions to this type of loan forgiveness. Please research this
thoroughly before committing to it.
Private Loan Considerations
•
Private Loan Repayment
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Managing variable rate private loans
• Payment amounts can change monthly, quarterly, or annually, depending on the loan
terms (Sallie Mae – monthly, Chase/Citibank – quarterly)
– Harder to forecast
– Requires careful budgeting
– Example below assumes a 20-year repayment
$58,000 at 7.25%
$458 per month
$58,000 at 8.25%
$494 per month
$58,000 at 9.25%
$531 per month
$58,000 at 10.25%
$569 per month
Extending your Federal loan repayment out to 25 years can help with lowering monthly
private loan payments which can offer more funds to focus on repaying their higher,
variable rate private loans
Big questions always is: Can you lock in the interest rate (consolidate) a private loan?
• Unfortunately, no, not into a fixed rate student loan product
Borrower Benefits
•
Ways to Lose Incentives
–
Lenders have been changing borrower benefits due to the credit crisis.
Check with your lender to see if you are still eligible for the borrower benefits
you were first quoted.
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Failure to enroll in required electronic servicing
•
Many lenders offer 0.25% interest rate reduction for auto-debit
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Failure to make required on-time payments
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Failure to understand definition of late payment
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usually within 10 – 15 days of due date, some as little as 1-7 days!!
Use of deferment, forbearance, or non-standard repayment when a “regularly
scheduled standard payment” clause is included
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Consolidation
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Sale of loan
Default/Delinquency
If you fail to repay (default on) student loans, it can:
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Negatively impact your credit rating
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Prompt withholding of your federal and state tax refunds
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Limit your job selection (many companies run credit checks on job
applicants)
•
Rescind your professional license
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Trigger garnishment of your wages
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Raise the interest rate you pay on a car or home loan
Be sure to be in touch with your lender if you are experiencing any issues
Next Steps – Summary
•
Identify all loans borrowed and when they go into repayment – plug the
dates into your calendars!
– If you have outstanding loans from prior degrees, your loan repayment will begin again
immediately at graduation.
•
•
Come up with a repayment strategy from the ones listed that best suits your
needs, financial plans, salary, bonuses, etc.
Log onto the lender/loan servicer websites and call them to:
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review all loans
sign up for ACH auto-debit! Don’t leave money on the table.
update addresses and other contact information
use loan repayment calculators to estimate monthly payments
inform them of any difficulties you are having with loan repayment
Make sure there are no HOLDS or account balances on your Columbia
account before you graduate – diploma will not be released.
Complete your mandatory Federal Exit Interview online using SSOL.
Loan Servicing Centers
Direct Loan Servicing Centers for Students [includes PUT loans]
For questions about loan repayment or other loan servicing issues, a borrower can contact his or her loan servicing
center.
Direct Loan Servicing Center
Phone: 800/848-0979
TDD/TTY: 800/848-0983
Overseas: 315/738-6634
Web site: www.dl.ed.gov
Department of Education Student Loan Servicing Center (ACS)
Phone: 800/508-1378
TDD/TTY: 800/662-1220 within New York State
TDD/TTY: 800/855-2880 outside New York State
Web site: www.ed-servicing.com
Loan Servicing Centers Continued
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FedLoan Servicing (PHEAA)
Phone: 800/699-2908
TDD/TTY: 800/722-8189
Overseas borrowers: 717-720-1985
Web site: www.myfedloan.org
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Great Lakes Educational Loan Services, Inc.
Phone: 800/236-4300
TDD/TTY: 800/236-4300
Overseas: 608/246-1700
Web site: www.mygreatlakes.org
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Nelnet
Phone: 888/486-4722
TDD/TTY: 888/486-4722
Overseas: 303/696-3625
Web site: www.nelnet.com
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Sallie Mae
Phone: 800/722-1300
Fax: 866/266-1300
TDD/TTY: 877/713-3833
Overseas: 254/554-4535
Web site: www.salliemae.com
Questions